CP13/6 - CRD IV for Investment Firms - Financial Conduct Authority

CP13/6
CRD IV for Investment Firms
Capital Conservation Plans (CCP) and Maximum Distributable Amount (MDA)
3.19 Where a firm fails to meet its CB (i.e. when the level of CET 1 capital maintained by the firm that
is not used to meet Pillar 1 and any Pillar 2A is insufficient), there are restrictions on the amount of
distributions (i.e. dividends, repayment of capital etc.) it will be able to make. These restrictions are
set out in the Directive, including the calculation of the Maximum Distributable Amount (MDA).
A firm must notify the FCA of its MDA within five working days and is prohibited from creating
certain obligations, and making certain payments and distributions before it has calculated its
MDA. Firms intending to create such obligations or make such payments or distributions will be
required to provide the relevant information and three months’ notice to the FCA. This notice
period is deemed reasonable given the type of obligations, payment and distributions being
constrained as they are typically subject to several months’ consideration as strategic rather than
tactical business decisions. This notice period is intended to give the FCA sufficient time to give
due consideration to whether the proposed payment or distribution pose risks to one of more of
its operational objectives. The FCA may in certain circumstances agree to a shorter notice period.
3.20 If the CB is, or is expected, not to be met, firms will be required to agree a Capital Conservation
Plan (CCP) with the FCA, which shall include restrictions on distributions (within the MDA)
based on the extent of the CB shortfall. Firms that fail to meet the CB must submit a CCP to the
FCA within five working days, unless the FCA extends this to up to ten working days.
3.21 The MDA calculation methodology will be copied out from the Directive into IFPRU. If the CCP
does not advance one or more of the FCA’s operational objectives, the FCA may require the
firm to increase its own funds to specified levels within specified periods and/or to further limit
distributions than those contemplated under the MDA where necessary.
3.22 The CCP submission timetable is set by the Directive. The five working day MDA notification
and three month notification for creating certain obligations or making certain payments or
distributions are policy proposals by the FCA.
Q5: Do you agree that the calculation of the Maximum
Distributable Amount (MDA) should be submitted to
the FCA within five working days? If not, please explain
why not and propose alternative notice periods and the
rationale for those notice periods.
Q6: Do you agree that where the firm fails to meet the
Combined Buffer (CB) and has a Maximum Distributable
Amount (MDA) in place, that firms must give a minimum
of three months’ notice to create obligations or make
payments or distributions that would otherwise be
prohibited because of the requirement to have an MDA?
If not, please explain why not and propose alternative
approaches and the rationale for those approaches.
Planning buffers
3.23 Our current ‘capital buffer’ regime under BIPRU is the Capital Planning Buffer (CPB). The CPB
is currently added to a firm’s Individual Capital Guidance (ICG), which is the sum of the Pillar 1
and Pillar 2A requirements.
3.24 At this stage it is still unclear how the various component buffers in the Directive will form part
of a firm’s CB that will be implemented by the designated authority. This means that it is not
yet possible to accurately map the CPB to the new capital buffer regime. Until the mapping can
be completed, the current CPB will be added to the Pillar 2A charge.
24 July 2013
Financial Conduct Authority